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European Economic New Era: Progress Challenges and Policy

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The advancement of information technology has propelled the U.S. economy to exhibit a phenomenon characterized by “high growth, low unemployment, and low inflation,” commonly referred to as the new economy. According to assessments of the new economy’s contribution to economic growth and productivity, the European Union (EU) lags behind the United States by approximately five years. There are two primary explanations for this disparity. First, the United States possesses a comparative advantage in both the production and application of information technology within its industry. Second, institutional rigidity within the EU’s economy impedes the development and implementation of information technology. In response to these challenges, the EU has initiated efforts focused on two key areas: economic structural adjustment and advancements in science and education. Consequently, it has proposed various initiatives including an e-Europe plan, a financial services action plan, a venture capital action plan, a strategy for establishing a European research area, and labor market reform plans aimed at vigorously developing its new economy. The goal is to strive towards catching up with or surpassing the level achieved by the United States.

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The so-called new economy mainly refers to the traditional economy. According to Western economic theory, during the process of economic growth, once the unemployment rate falls below 6%, the inflation rate will rise sharply. However, since March 1991, the U.S. economy has continued to grow at a high rate, especially in the late 1990s when the average economic growth rate exceeded 4%, the unemployment rate dropped to 3.9%, and the core inflation rate was less than 2%. Some economists call the "high growth, low unemployment, low inflation" economy that has emerged in the United States the new economy. The term “new economy” predominantly alludes to the traditional economic framework. According to established Western economic theory, during periods of economic expansion, a decline in the unemployment rate below 6% typically precipitates a significant surge in inflation. However, since March 1991, the U.S. economy has experienced sustained high growth rates; particularly notable was the late 1990s when the average growth rate surpassed 4%, accompanied by an unemployment rate that plummeted to 3.9%, while core inflation remained under 2%. This remarkable phenomenon—characterized by “high growth, low unemployment, and low inflation”—has led some economists to designate this era as the new economy. A salient weakness within the European Union’s economic landscape is its relative lag behind the United States in both information technology production and application. In response to this challenge, the EU has initiated a series of strategic measures aimed at cultivating a new economy with aspirations not only to catch up with but also potentially surpass its American counterpart domestically. The goal is to establish itself as one of the most competitive and dynamic new economic regions on a global scale.

The great contribution of information technology to the economy

In the past two decades, the information technology industry within the European Union has experienced remarkable growth, significantly enhancing its importance in the national economy.  As of now, the added value generated by this sector has reached an impressive 493 billion euros.  This represents an increase in its contribution to GDP from 3.6% in 1995 to 4.4%, with an average annual growth rate of approximately 15%.  This performance notably surpasses the overall GDP growth rate of 2.5% during the same period and has contributed an average boost of 0.5 percentage points per year to the EU economy since 1995.
However  compared with the development of the United States  the EU still has room for improvement. Since 1995  the U.S. information technology industry has grown at an average annual rate of 20 percent  and its added value accounts for about 8.3 percent of GDP-the sector alone contributes one third of economic growth. In terms of contribution to economic expansion  it is worth noting that as early as 2000  Europe was only at a level comparable to that of the United States in the period 1990 to 1995  a difference of almost five years.
Countries such as Ireland  Finland  Sweden  the Netherlands and the United Kingdom have made great strides; notably  the value added of Ireland’s information technology industry now exceeds even that of the United States. In addition  the IT sector in Finland is growing much faster than in the United States.
The expansion of the information technology sector has significantly enhanced productivity.  In neoclassical economic growth theory, aside from growth driven by capital and labor inputs, economic growth is defined as total factor productivity, which essentially reflects the growth rate of technological factors.  Estimates indicate that since 1995, the contribution of information technology to total factor productivity in the European Union has augmented economic growth by approximately 0.2 percentage points annually, comparable to levels observed in the United States during 1990-1995.
The declining prices of information technology products and services have mitigated inflationary pressures within the EU;  specifically, hardware equipment prices decreased at an average annual rate of 1.8 percent during the 1980s, while software and communications service prices fell by 0.3 percent and 0.2 percent per year respectively in that period.  In contrast, during the first half of the 1990s, these rates were recorded at declines of 3.3 percent for hardware equipment and both software and communications services at a reduction rate around 0.7 percent each per annum;  however, in the latter half of that decade decline rates surged to approximately 10 percent for hardware equipment alongside reductions for software and communications services at about 1.4 percent and 1.3 percent respectively per year thereafter.  Since 1995 alone, falling prices associated with IT products and services have contributed to a reduction in inflation within the EU by roughly 0.2 percentage points annually.
Another dimension characterizing new economy development includes metrics such as ownership rates for information technology products like computers, internet accessibility levels, mobile phone usage statistics as well as e-commerce advancement—these serve as primary indicators where it becomes evident that Europe lags considerably behind its American counterpart:  preliminary estimates suggest there are only about twenty computers available per one hundred individuals within Europe—less than fifty percent compared to figures reported from America;  furthermore only fourteen percent of Europeans are online—a figure less than one-third when juxtaposed against U.S data;  additionally e-commerce activity stands at around seventeen billion euros—merely a quarter relative to U.S benchmarks—with mobile phone penetration being equal between both regions on a per capita basis but overall expenditure on IT products remains lower in Europe averaging €1,600—less than fifty percent compared with American spending patterns.
The empirical analysis further suggests that the non-IT sector across Europe has not experienced increases in labor productivity or total factor productivity directly attributable to its involvement in IT solutions. Although the rapid development of the European information technology industry has made a positive contribution to its economic development  the region still lags behind the United States by five years in terms of its contribution to overall economic growth and the improvement of total factor productivity.

The reasons behind the EU’s new economy

From the perspective of the traditional industrialization process and the economic structure that has been formed  the European Union and the United States are both industrialized countries  and there is not much difference. In some countries  such as Germany  the process of industrialization is even more obvious than that of the United States. But why the new economy first appeared in the United States and not the European Union.
There are two explanations for this. First  the United States has a comparative advantage in the production and application of the information technology industry. the other is that the rigid economic system of the eu has hindered the development and application of the information technology industry. The theory of comparative advantage emphasizes the role of factor endowments and specialization in the development process of different countries. According to this theory  the United States has established a comparative advantage in the production and application of the information technology industry  which is mainly reflected in its large number of engineering and technical personnel  the policy of encouraging the development of the information industry  and the transfer of a large number of military technology to civilian and military industries. Technology spillover. Talent advantage is the most important comparative advantage of the United States. The proportion of information technology personnel in the United States is significantly higher than that in the European Union. Within the EU  countries with rapid development of information industry  such as Finland  Ireland and Sweden  have the highest proportion of educators majoring in natural science and engineering. The front line. Because of the network effect and the first sponsor effect of information technology  even if the difference between Europe and the United States in the early stage of information technology development is small  the United States may have a huge comparative advantage due to the positive feedback effect of R & D and specialized production.Bilateral information technology trade between Europe and the United States also illustrates the comparative advantage of the United States.
In recent years, emerging economies have made significant strides in manufacturing, particularly in advanced manufacturing, progressively securing a foothold in the global manufacturing sector through lower labor costs, abundant resources, and continuously advancing technological capabilities. Europe once enjoyed advantages in high value-added industries, but the accelerating global industrial transformation has significantly altered the manufacturing landscape. Emerging economies are on the rise in sectors like electronic information and new energy vehicles, competing with European companies and posing challenges to European manufacturing. Compared to China’s “Made in China 2025” strategy, the EU appears to lack systematic planning and effective incentive policies to foster technological and industrial advancement. Despite Germany’s “Industry 4.0” initiative, supporting incentive details have yet to be formulated, leading to a relatively slow pace of technological innovation in the EU and an inability to keep pace with the global industrial transformation. Furthermore, as anti-globalization gains momentum and geopolitical tensions escalate, the external risks confronting the European economy are becoming increasingly unpredictable. Geopolitical events, such as the Ukrainian crisis and the Israeli-Palestinian conflict, have contributed to a fragmented geopolitical environment surrounding Europe, exacerbating internal social divisions and political polarization, and further impacting Europe’s economic performance.
At the same time the theory of economic system difference also demonstrates that the rigid economic system of the European Union restricts the new economy. First the labor market is relatively rigid. The EU’s strict dismissal procedures  high severance pay  minimum wage restrictions  working time restrictions  and various employment protection measures  as well as strong trade union power  make it extremely expensive to dismiss workers  which inhibits the use of labor cost savings by enterprises. The enthusiasm of technology reduces the demand and application of information technology products. Second the financial system is immature and lacks innovation. The United States implements equity capitalism and its development path is: individual entrepreneurship → partnership → shareholding system  using the capital market for financing. The emergence and rapid expansion of venture capital in the United States is considered a new development of the financial revolution and equity capitalism. It has provided investment for some emerging technology companies with great development potential and growth prospects but with high risks  and has spawned a large number of information technology companies  enabling them to develop rapidly. Intel  Microsoft and others have grown into technology giants as rich as their enemies through venture capital. However  most EU countries adopt bank debt capitalism  with most of their savings flowing into a few large  asset-rich firms. Many emerging enterprises that rely on technological achievements  because their intangible assets cannot be used as collateral  banks do not provide venture capital and cannot obtain bank loan support  thus limiting the development of emerging industries.In addition  various administrative barriers to the establishment of new enterprises  the serious separation of public and private research  and the rigid scientific research system also hinder the development of information technology.

Measures taken by the EU to develop a new economy

Although the EU lags behind the United States in the new economy. But Europe has the opportunity and conditions to catch up. Firstly, European and American enterprises engaged in the new economy have merged and invested in each other; Secondly, the existing experience and practices in the United States can be utilized; Thirdly, after the launch of the Euro, the capital markets in Europe have developed rapidly and fundraising has become increasingly convenient. But Europe must take action in both economic structural reform and science and education. In March last year, the Lisbon Summit of the European Union proposed the establishment of an electronic Europe plan, which was raised to the same level as the EU Common Market and the Economic and Monetary Union. In addition, various plans were formulated, such as the Financial Services Action Plan, the Venture Capital Action Plan, and the European Research Area Strategy, aiming to catch up with the level of the United States before the end of the year. The main policies for the development of information technology are as follows:
Resolutely implement prudent macroeconomic policies  take price stability as the main goal of macroeconomic control  reduce uncertainties in economic development  smooth out cyclical economic fluctuations  and encourage investment and sustained and stable economic development Accelerate the pace of information technology application and improve the information technology application environment. Formulate a unified e-commerce law and implement a unified patent law. Through the full liberalization of the telecommunications market  all schools in the EU will be connected to the Internet by 2020  and all government procurement will be connected to the Internet. Enhance online training to encourage lifelong learning.
Develop the venture capital market. Venture capital, as an important source of funding for innovative enterprises, plays a crucial role in the development of high growth businesses. However, compared to the United States, venture capital is still in an underdeveloped stage in Europe. 19. The amount of venture capital in the United States reached 33 billion euros, an increase of 150% over the previous year, with investments in software, communications, and the Internet reaching 18 billion euros; however, the amount of venture capital in Europe was only 12 billion euros, an increase of 70% from the previous year. Its investment in software, communication, and the Internet was 5 billion euros, less than one-third of that in the United States. To this end, the European Union has proposed a venture capital action plan, with the main measures being to accelerate the pace of internal integration within the EU, make cross-border financial activities more convenient, implement unified settlement rules for professional investors, improve financial conditions for enterprises to obtain financial support, and invest 230 million euros to support enterprises in obtaining loans and venture capital; Establish a committee of 7 wise people to study policies to accelerate the integration of the EU capital market.
Cultivate entrepreneurial spirit and support the development of small and medium-sized enterprises. Small and medium-sized enterprises are the foundation of economic development and employment in EU member states, and a major force in the development of the new economy. Firstly, encourage entrepreneurial and team spirit, utilize social funds to fund various activities that promote and publicize entrepreneurial and team spirit, strengthen vocational education and on-the-job training, and create a vibrant corporate culture and spirit; Secondly, encourage enterprises to innovate, improve their research and development capabilities and product development capabilities, and use unified patent laws to protect the technological security of innovative enterprises; Once again, relax the various restrictions imposed by the government on enterprises in terms of opening and operating, optimize the administrative management and social environment for enterprise development; Fourth, provide international business operations and various forms of information services for enterprises; Fifth, develop new service industries such as technology-based, economic based, and social based industries, including e-commerce, internet, information, elderly care services, characteristic tourism, and community services.
Encourage innovation in the technology system and the transformation of technological achievements. Innovation is an important driving force for improving competitiveness and promoting employment. In terms of innovation capability, Europe lags far behind the United States, and the gap has been further widening since the mid-1990s., The research and development expenditure of the 15 EU countries accounts for 1.8% of their GDP, while that of the United States is 2.8%. At the same time, research and development efforts are scattered, and there is a disconnect between research and commercialization of results, without forming a unified technology market. The European Commission has planned to establish a European Research Area to reduce the dispersion of research efforts, encourage cooperation between research institutions and enterprises, and accelerate the transformation of scientific and technological achievements. At the same time, relax immigration policies and attract foreign technical talents.
Better leverage the role of the labor market. The governments of the Eurozone countries and the European Commission have always regarded labor market reform and addressing unemployment as the primary issues to be addressed in economic reform and structural adjustment. Since then, three labor market reform plans have been proposed, namely Luxembourg, Cardiff, and Cologne. The main measures of labor market reform are to shift the dependence of the unemployed on social welfare towards preventive measures such as improving worker skills through training, establishing a unified labor market, and allowing the unemployed to enter the labor market. The welfare system will be reformed, and the standards for receiving unemployment benefits will be strictly enforced.

Auxiliary Strategies for the Development of the New Economy in Europe

The EU 2020 Strategy mentions education 32 times and training 13 times. In recent years, the EU has placed high hopes on developing education to overcome the European debt crisis, promote employment and economic development, and ultimately achieve its strategic goals. In July 2013, under the framework of the “EU 2020 Strategy”, the EU launched a new internationalization strategy for higher education. This strategy is based on the EU’s high emphasis on the important role of internationalization in education, which effectively promotes the flow of personnel and technology, thereby promoting the improvement of individual abilities, the enhancement of educational quality, and the development of a knowledge innovation society. This strategy has sorted out and refined how the internationalization of education should serve the three major functional indicators of the “EU 2020 Strategy”, providing macro policy guidance for EU member states and proposing policy support and project initiatives that the EU can provide.
The main contents of the EU’s internationalization strategy for higher education are twofold: firstly, to provide macro policy guidance for EU member states and their higher education institutions; The second is to provide policy and project support for the EU in promoting internationalization of higher education. Among them, in providing macro policy guidance, the EU has proposed the idea of building a more comprehensive internationalization strategy, pointing out that a comprehensive internationalization strategy for higher education should include three aspects: first, the international mobility of students and faculty; Secondly, the internationalization and quality improvement of courses and digital teaching; The third is the establishment of strategic partnerships and self-capacity building.
In terms of international mobility of students and faculty, Europe has established an internal credit conversion and certification system, and credit recognition between Europe and America has also been achieved through intercollegiate cooperation, which effectively promotes student mobility and thus promotes the internationalization of higher education. In order to further promote the international mobility of students and faculty, the EU has put forward a focus on promoting international mobility in higher education, which includes further promoting credit recognition worldwide, paying more attention to the international mobility of faculty, building higher quality international cooperation courses, enhancing the link between scientific research and the economy, further improving the quality of higher education in Europe, and improving immigration and visa policies to eliminate institutional barriers to personnel mobility.
In terms of internationalization and quality improvement of courses and digital teaching, this strategy emphasizes that the internationalization of higher education should not be limited to a small number of students and faculty who can study and train abroad, but should also focus on a wider range of teachers and students who cannot go abroad but also need an international perspective. Therefore, it is necessary to integrate internationalization factors into curriculum design, teaching content, and teaching processes, introduce international teaching personnel, and attract international students to build an international campus. At the same time, it is also necessary to enhance the internationalization of higher education through textbook exchanges, virtual campuses, teaching software, interdisciplinary network exchanges, and other means. To this end, it is recommended that EU member states and higher education institutions prioritize the following three aspects of work: first, fully utilize the internationalization experience and skills of education personnel, develop international courses for students who cannot study abroad, and enable them to gain an international perspective and skills; The second is to provide students and faculty with more opportunities for language learning, so that they can benefit to the fullest extent in a multilingual environment in Europe; The third is to carry out international cooperation through new digital methods such as online teaching and screen courses, jointly develop international courses, and explore new forms of partnership.
In terms of establishing strategic partnerships and building its own capacity  the Strategy points out that Europe already has a certain first-mover advantage in attracting international students  but the internationalization strategy of higher education requires deeper and broader global cooperation. Higher education institutions need to be more accurately positioned according to their advantages in education and research innovation. We need to seek strategic partners in Europe and beyond establish joint projects conduct joint scientific research cultivate new research projects  further strengthen our own advantages and complement our partners. Cooperation in the field of United Nations degrees and dual degrees is an important way to build partnerships. According to incomplete statistics more than 700 European universities have benefited from joint degree and higher education programs. The EU and EU member states will continue to adopt incentives to encourage further cooperation between European universities and partners in this regard. At the same time barriers between the two sides will be further removed such as school-level regulations on credit composition examinations and thesis writing and national-level restrictions on the issuance of joint degrees. In addition cross-border cooperation in the field of innovation is also an important way to establish strategic partnerships in which cooperation with developing countries is an important factor in the internationalization strategy of higher education because today’s developing countries are likely to become tomorrow’s emerging economies. The international mobility of students not only helps to improve the quality of higher education in developing countries but also enables European higher education institutions to benefit academically and fulfill their social responsibilities thus contributing to the establishment of deep and lasting strategic relationships.
As mentioned above, the second aspect of the EU’s internationalization strategy for higher education is to provide policy and project support for the EU in promoting internationalization of higher education. In this regard, the EU will enhance the attractiveness of higher education in Europe by improving the quality and transparency of higher education, including international cooperation and dialogue, and strengthening the comparability of qualifications, credits, and registration procedures within and outside the EU. In addition, the EU will further enhance the quality of international exchanges in higher education through existing programs and self-assessment and monitoring systems for universities, and continue to develop and improve a multidimensional university ranking system in Europe to improve transparency, comparison criteria, and comparability among higher education institutions. Moreover, the EU will cooperate with European higher education promotion agencies and alumni associations through sharing information and coordinating actions, further establishing a high-quality education and research image in Europe. In terms of project initiatives, the European Commission will further increase funding for two-way exchanges between overseas students and researchers through the Erasmus Action Plan.
By Yiqi Wen

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